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ANNUAL REPORT
DECEMBER 31, 2000
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Our cover icon represents the underpinnings
of Gabelli. The Teton mountains in Wyoming
represent what we believe in America -- that
creativity, ingenuity, hard work and a global
uniqueness provide enduring values. They also
stand out in an increasingly complex,
interconnected and interdependent economic
world.
INVESTMENT OBJECTIVE:
The Gabelli Convertible Securities Fund, Inc.
is a closed-end, diversified management
investment company whose primary objective is
to seek a high level of total return through
a combination of current income and capital
appreciation by investing in convertible
securities.
THIS REPORT IS PRINTED ON RECYCLED PAPER.
TO OUR SHAREHOLDERS,
As hybrid securities with equity and fixed income characteristics,
convertible security performance is impacted by stock and bond market trends. In
fourth quarter 2000, bonds rallied as equities declined in response to the
rapidly decelerating economy. Yield helped support convertible securities prices
as stocks sold off. Our approach to the convertible securities market is to
identify converts with two thirds the upside potential of the underlying common
stock and one third the downside risk. The Gabelli Convertible Securities Fund's
(the "Fund") performance this year reflects the effectiveness of this approach.
INVESTMENT PERFORMANCE
For the year ended December 31, 2000, The Fund's net asset value ("NAV")
was up 0.03% to $10.02, after adjusting for the $1.30 per share in distributions
which were paid during this period. The Standard & Poor's ("S&P") 500 Index
declined 9.10% while the Lipper Inc. Convertible Securities Fund Average rose
0.47% over the same period. The S&P 500 Index is an unmanaged indicator of stock
market performance, while the Lipper Average reflects the average performance of
mutual funds classified in this particular category.
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For the two-year period ended December 31, 2000, the Fund's total return
averaged 4.61% annually, including adjustments of $2.33 per share in
distributions, versus average annual returns of 4.90% and 14.86% for the S&P 500
Index and the Lipper Convertible Securities Fund Average, respectively. For the
fourth quarter, the Fund slipped 1.78% after adjusting for the $0.70 per share
distribution paid on December 26, 2000. The S&P 500 Index and the Lipper
Convertible Securities Fund Average declined 7.82% and 9.44%, respectively, over
the same period.
For the five-year period ended December 31, 2000, the Fund's total return
averaged 7.83% annually versus average annual returns of 18.33% and 13.10% for
the S&P 500 Index and the Lipper Convertible Securities Fund Average,
respectively. Since inception on July 3, 1989 through December 31, 2000, the
Fund had a cumulative total return of 171.43%, which equates to an average
annual total return of 9.07%.
The Fund's common shares ended the fourth quarter at $9.1250 per share on
the New York Stock Exchange, a decline of 0.36% for the fourth quarter, a
decline of 1.68% for the past twelve months and up 43.86% from its initial price
of $11.25 on March 31, 1995 after adjusting for reinvestment of dividends
totalling $6.095 per share which were paid during this period.
OUR OBJECTIVE
Our mandate is to preserve and enhance our shareholders' wealth through a
conservative and disciplined approach to convertible securities investing. Our
goal is to generate profitable returns in strong markets and protect principal
in weak markets by taking advantage of the unique characteristics of convertible
securities.
Our Fund is managed with the goal of achieving a 600-800 basis point
spread above long-term Treasury yields. We hope to generate these returns over
the long term. This is the type of performance that our Fund has been recognized
for and we anticipate will continue in the future. Of course, there are no
guarantees.
WHAT WE DO
The success of momentum investing in recent years and investors' desire
for instant gratification have combined to make value investing appear dull. At
the risk of being dull, we will once again describe the "boring" value approach
that has seen us through both good and bad markets over the last 11 years at the
Fund and for over 23 years at Gabelli Asset Management Company. In past reports,
we have tried to articulate our investment philosophy and methodology. The
following graphic further illustrates the interplay among the four components of
our valuation approach.
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TEXT AS FOLLOWS:
EPS
PMV
MANAGEMENT
CASH FLOW
RESEARCH
INVESTMENT RESULTS (a)(c)
--------------------------------------------------------------------------------
Quarter
-------------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
2000: Net Asset Value ...... $11.32 $11.16 $10.93 $10.02 $10.02
Total Return ......... 1.3% 0.6% (0.1)% (1.8)% 0.0%
--------------------------------------------------------------------------------
1999: Net Asset Value ...... $11.45 $12.13 $11.67 $11.40 $11.40
Total Return ......... 1.8% 7.8% (2.0)% 1.7% 9.4%
--------------------------------------------------------------------------------
1998: Net Asset Value ...... $11.87 $11.66 $10.96 $11.45 $11.45
Total Return ......... 5.3% 0.0% (4.2)% 7.4% 8.3%
--------------------------------------------------------------------------------
1997: Net Asset Value ...... $11.13 $11.38 $11.81 $11.48 $11.48
Total Return ......... 1.7% 3.5% 5.0% 2.8% 13.5%
--------------------------------------------------------------------------------
1996: Net Asset Value ...... $11.28 $11.33 $11.23 $11.08 $11.08
Total Return ......... 3.6% 1.6% 0.3% 2.6% 8.4%
--------------------------------------------------------------------------------
1995: Net Asset Value ...... $11.14 $11.51 $11.64 $11.01 $11.01
Total Return ......... 5.1% 5.2% 3.0% 1.1% 15.0%
--------------------------------------------------------------------------------
1994: Net Asset Value ...... $11.54 $11.39 $11.60 $10.60 $10.60
Total Return ......... 0.2% (1.3)% 1.8% (0.9)% (0.2)%
--------------------------------------------------------------------------------
1993: Net Asset Value ...... $12.07 $12.36 $12.75 $11.52 $11.52
Total Return ......... 5.4% 2.4% 3.2% 1.5% 13.1%
--------------------------------------------------------------------------------
1992: Net Asset Value ...... $11.29 $11.52 $11.90 $11.45 $11.45
Total Return ......... 3.5% 2.0% 3.3% 3.6% 13.0%
--------------------------------------------------------------------------------
1991: Net Asset Value ...... $11.06 $11.27 $11.57 $10.91 $10.91
Total Return ......... 5.6% 1.9% 2.7% 1.8% 12.5%
--------------------------------------------------------------------------------
1990: Net Asset Value ...... $10.56 $10.68 $10.56 $10.47 $10.47
Total Return ......... 1.5% 2.1% (1.1)% 3.8% 6.3%
--------------------------------------------------------------------------------
1989: Net Asset Value ...... -- -- $10.54 $10.51 $10.51
Total Return ......... -- -- 5.4%(b) 0.8% 6.3%(b)
--------------------------------------------------------------------------------
--------------------------------------------------------------
Average Annual Returns - December 31, 2000 (a)
----------------------------------------------
1 Year ........................................ 0.03%
5 Year ........................................ 7.83%
10 Year ....................................... 9.17%
Life of Fund (b) .............................. 9.07%
--------------------------------------------------------------
Dividend History - Common Stock
-----------------------------------------------------
Payment Date Rate Per Share Reinvestment Price
------------ -------------- ------------------
December 26, 2000 $0.700 $ 9.80
September 25, 2000 $0.200 $ 9.85
June 26, 2000 $0.200 $ 9.98
March 27, 2000 $0.200 $ 9.71
-----------------------------------------------------
December 27, 1999 $0.430 $10.38
September 27, 1999 $0.200 $10.86
June 28, 1999 $0.200 $11.38
March 29, 1999 $0.200 $11.04
-----------------------------------------------------
December 28, 1998 $0.320 $11.49
September 28, 1998 $0.200 $10.52
June 26, 1998 $0.200 $11.02
March 26, 1998 $0.200 $11.10
-----------------------------------------------------
December 26, 1997 $0.600 $10.49
September 26, 1997 $0.120 $10.44
June 27, 1997 $0.120 $ 9.96
March 27, 1997 $0.120 $ 9.63
-----------------------------------------------------
December 27, 1996 $0.375 $ 9.51
September 23, 1996 $0.120 $ 9.73
June 24, 1996 $0.120 $10.17
March 25, 1996 $0.120 $10.41
-----------------------------------------------------
December 27, 1995 $0.750 $10.95
September 27, 1995 $0.200 $11.10
June 27, 1995 $0.200 $11.21
-----------------------------------------------------
December 31, 1994 $0.900 $10.60
December 31, 1993 $1.425 $11.52
December 31, 1992 $0.876 $11.45
December 31, 1991 $0.865 $10.91
December 31, 1990 $0.490 $10.47
June 28, 1990 $0.100 $10.68
March 29, 1990 $0.100 $10.55
December 29, 1989 $0.115 $10.51
(a) Total return and average annual return reflect changes in net asset value
and reinvestment of dividends and are net of expenses. Of course, the returns
noted represent past performance and do not guarantee future results. Investment
returns and the principal value of an investment will fluctuate. When shares are
sold they may be worth more or less than their original cost. (b) From
commencement of operations on July 3, 1989. (c) The Fund converted to closed-end
status on March 31, 1995.
--------------------------------------------------------------------------------
2
Our focus is on free cash flow: earnings before interest, taxes,
depreciation and amortization ("EBITDA") minus the capital expenditures
necessary to grow the business. We believe free cash flow is the best barometer
of a business' value. Rising free cash flow often foreshadows net earnings
improvement. We also look at earnings per share trends. Unlike Wall Street's
ubiquitous earnings momentum players, we do not try to forecast earnings with
accounting precision and then trade stocks based on quarterly expectations and
realities. We simply try to position ourselves in front of long-term earnings
uptrends. In addition, we analyze on and off balance sheet assets and
liabilities such as plant and equipment, inventories, receivables, and legal,
environmental and health care issues. We want to know everything and anything
that will add to or detract from our private market value ("PMV") estimates.
Finally, we look for a catalyst: something happening in the company's
industry or indigenous to the company itself that will surface value. In the
case of the independent telephone stocks, the catalyst is a regulatory change.
In the agricultural equipment business, it is the increasing world-wide demand
for American food and feed crops. In other instances, it may be a change in
management, sale or spin-off of a division or the development of a profitable
new business.
Once we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a proven long-term
method for preserving and enhancing wealth in the U.S. equities market. At the
margin, our new investments are focused on businesses that are well-managed and
will benefit from sustainable long-term economic dynamics. These include macro
trends, such as the globalization of the market in filmed entertainment and
telecommunications, and micro trends, such as an increased focus on productivity
enhancing goods and services.
CONVERTIBLE SECURITIES ARE "HYBRIDS"
It is important to understand our stock selection discipline because price
movement in the underlying equity will generally have the greatest impact on
convertible securities pricing. The convertible securities market consists of
bonds, debentures, corporate notes, preferred stocks and warrants or other
similar securities which may be converted into or exchanged for a prescribed
amount of common stock or other equity security of the same or a different
issuer within a particular period of time at a specified price or formula.
Converts are "hybrid" securities that combine the capital appreciation potential
of equities with the higher yield of fixed income instruments. Our strategy
incorporates the purchase of convertible securities that are trading at a
premium above parity with the common stock but which generally provide a higher
yield and, over time, capital appreciation. We will also seek out "busted"
converts, where the underlying common stock has dropped significantly and the
values of both the conversion privilege and the convert are down. Such
securities will provide both high yields and long-term capital appreciation
potential.
CONVERTIBLE MARKET OVERVIEW
As of December 31, 2000, the size of the U.S. convertible market shrank to
$155 billion versus $166 billion last year. The market declined despite the fact
that the year 2000 saw record new issuance of $60 billion. The decline was due
to the 10% fall in performance, as net new issuance remained relatively constant
at $2.4 billion. The average credit quality improved one notch to BB+ as many
investment grade issuers were drawn to the market on very favorable terms.
Investment grade issuers now constitute 43% of the market, versus 31% last year.
The fact that corporate treasurers' increasingly view convertibles as a general
purpose financing tool, rather than a specialty product, is noted in both the
size and type of transactions. The average deal size has increased from $162
million in 1994 to $426 million in 2000. The largest deal of the year was issued
by Tyco International for $3.5 billion. The increasingly institutional nature of
the market is illustrated by the rise in 144A transactions, which constituted
61% of all new issue activity, up from 24% just five years ago. Initially, these
placements can only be sold to institutional investors. This means that retail
convertible investors are generally better served by mutual funds than direct
convertible investments.
At year-end, the average convertible security had a current yield of 4.49%
and a conversion premium of 37%. The worst performing sectors were
Telecommunications (-47.41%), Materials (-26.94%), and Consumer Discretionary
(-17.63%). While Utilities (+76.21%), Healthcare (+40.83), and Energy (+39.93%)
were star performers. The flight to quality was also apparent as investment
grade issuers outperformed speculative grade issuers' +3.3% versus -22.9%.
3
COMMENTARY
THE PERFECT STORM
In the best selling novel and popular motion picture "The Perfect Storm,"
three separate weather systems converged to produce a storm of epic proportions
in the North Atlantic. In the last four months of 2000, separate forces
converged to swamp the global economy and equity markets.
Rapidly rising oil prices took $50 billion out of U.S. consumers' pockets
for gasoline expenditures alone. Then, in the second quarter, the reversal of
the "wealth effect" -- declining equities portfolios -- further eroded consumer
confidence and spending. The tight Fed policy and its impact on the money supply
and short-term interest rates worked. Finally, the disputed U.S. Presidential
election inflicted thirty-seven days of uncertainty, and consumers began
buckling up their life preservers. The global economic ship floundered and U.S.
Gross Domestic Product ("GDP") growth was cut in half in one quarter. Investors
began wondering whether the U.S. economy would make it safely to port or sink
into recession.
At the beginning of September, companies in a wide range of industries
began issuing third quarter earnings warnings -- some just weeks after assuring
Wall Street that they would meet consensus expectations. Some of these companies
cited the impact of the "weak Euro" on reported profits. When third quarter
earnings disappointed and companies began warning that fourth quarter results
would also fall short of estimates, the market began taking on water from all
sides.
FAIRER WEATHER AHEAD?
As we prepare this letter, we are experiencing a temporary calm. However,
small craft warnings are still in effect, and we suggest investors prepare
themselves for high winds of volatility and choppy market seas over the next
several quarters. The depth of the recession - we like to say how bad is bad -
will be tied to the ability of monetary and fiscal policy to overcome the
combined drops from capital spending and the wealth effect.
Our longer term forecast is for an economic (and earnings) recovery. Oil
prices have stabilized and will likely trend lower in 2001 as increased
production comes to market. The dollar has weakened against the Euro,
foreshadowing some improvement in the balance of trade deficit and better
earnings for U.S. based multinationals. Although President George W. Bush won
the narrowest of victories and Congress is almost evenly split along party
lines, we do think some tax relief is on the horizon. The Federal Reserve has
blinked, acknowledging that the risk of recession now outweighs that of
inflation, and has already reduced interest rates by 100 basis points in 2001.
We believe S&P 500 earnings growth will be buttressed by its roughly one-third
non-U.S. component, and come in with a respectable 5% in 2001, and Russell 2000
(small cap stocks) earnings growth will be materially higher. Equity valuations
are now much more reasonable across the board. Finally, Wall Street's overly
optimistic earnings estimates are rapidly being reduced to reflect current
economic realities. This should limit widespread earnings disappointments going
forward, and by the fourth quarter of 2001 should result in pleasant earnings
surprises, helping to renew investor confidence and revive the market.
UNITED STATES
Will America's economic slowdown result in a hard or soft landing? Over
the last nine months, this has been the main question for investors. After
expanding at an annualized pace of 5.90% in the first half of 2000, GDP grew at
only 2.80% in the second half. The Federal Reserve Bank ("The Fed") recently cut
interest rates by a surprising 0.50% after December's Purchasing Manager's Index
("PMI") slid to 43.70%. A figure below 50% indicates a contraction in
manufacturing activity. The index dropped from 47.70% in November sparking
concerns that the economy was decelerating too quickly. However, the long-term
picture remains positive. Falling interest rates, declining oil prices, a
possible Bush tax cut, and more reasonable equity valuations all suggest better
returns in the year ahead.
4
YEAR-END SCORECARD
The Fund's large cash position, which consisted of 47.0% of total net
assets at year-end, helped preserve capital in this year's distressed market.
Utility investments such as AGL Resources and Northeast Utilities performed well
and drug retailer CVS Corp. also posted a good gain. Auto parts retailer Pep
Boys pepped up the portfolio.
Our media and telecommunications investments including UnitedGlobalCom,
Metromedia International Group, Sprint Corp., Sprint PCS, and United States
Cellular faltered badly. Auto parts manufacturer Standard Motor Products and
specialty metals company WHX Corp. also performed poorly.
GOOD THINGS COME TO THOSE WHO WAIT
The critical element to our success in the equity and convertible
securities markets has been patience in both the selection process and in
waiting for the values of portfolio positions to be recognized. We will continue
to be patient and opportunistic in selecting converts for the Fund and will
invest in short-term instruments (including time sensitive workouts) when
appropriate. We purchased mostly short-term U.S. Treasury obligations in the
past. However, the U.S. financial system has improved significantly and we now
take advantage of other short-term alternatives. In this regard, the Fund at
times engages in risk arbitrage to generate returns. By risk arbitrage we mean
investing in "event" driven situations; primarily, but not exclusively, in
announced mergers, acquisitions, reorganizations and other "workout"
opportunities. In order to avoid overall market risk in these opportunities, the
Fund will concentrate on lower risk transactions.
Simply stated, risk arbitrage is investing in a merger or acquisition
target after the deal has been announced and pocketing the spread between the
trading price of the target company following the announcement and the deal
price upon closing. This spread is usually relatively narrow, offering a
somewhat modest nominal total return. However, since deals generally close in
much less than a year's time, this modest total return translates into a much
more attractive annualized return.
We borrow a quote from Warren Buffett to explain our occasional use of
risk arbitrage in the Fund: "Our subsidiaries sometimes engage in arbitrage as
an alternative to holding short-term cash equivalents. We prefer, of course, to
make major long-term commitments. But we often have more cash than good ideas.
At such times arbitrage sometimes promises much greater returns than Treasury
Bills and, equally important, cools any temptation we may have to relax our
standards for long-term investments."
In short, the high cash position in the Fund does not reflect any effort
on our part to time the convertible securities market. It is rather a
consequence of our value-oriented discipline. At the same time, a sampling of
our convertible securities has been called by their issuers and we either
received cash or stock. Our portfolio turnover rate reflects this activity, as
well as our investments in "event" driven situations that were consummated
during the year. We are always hard at work evaluating opportunities and
identifying fundamental bargains to progress to a more fully invested posture.
However, we will not stretch our fundamental parameters and introduce greater
market risk to the portfolio.
5
LET'S TALK CONVERTS
The following are specifics on selected holdings of our Fund. Favorable
earnings prospects do not necessarily translate into higher prices, but they do
express a positive trend which we believe will develop over time.
CITIZENS COMMUNICATIONS CO. (5.00% CV. PFD.), will soon become the country's
largest independent local exchange carrier with about 3 million access lines
once it completes several acquisitions of over 2 million lines for $6.5 billion.
Upon completion of these transactions, accompanied by divestitures of its
utilities operations, the company will reposition itself as a pure
telecommunications company. Citizens also owns 81% of a competitive carrier,
Electric Lightwave (ELIX - $3.3125 - Nasdaq), with fiber optic networks covering
the Western part of the U.S.
KAMAN CORP. (SUB. DEB. CV., 6.00%, 03/15/12), founded in 1945, is a pioneer in
the helicopter industry. Aircraft manufacturing remains the core of the
business. Kaman serves both commercial and governmental markets with helicopters
and aircraft components. The company also produces specialized, high-value niche
market products and services that tend to be technological leaders in their
markets. Kaman is a major, national distributor of original equipment, repair
and replacement products and value-added services to nearly every sector of
North American industry. The company also manufactures and distributes musical
instruments (Ovation guitars) and accessories to independent retailers.
ROBBINS & MYERS INC. (SUB. DEB. CV., 6.50%, 09/01/03) is an international
manufacturer of industrial mixing equipment, glass-lined vessels, industrial
pumps and corrosion resistant products serving the process industries such as:
specialty chemicals, pharmaceuticals, water treatment, oil and gas, and food and
beverage. The Energy Systems business, with a $10.5 million backlog along with
higher sustained crude oil and natural gas prices and increased drilling
activity, should remain strong through the balance of fiscal 2001. We think that
revenues in the Process Systems segment will be down in 2001 due to weakness in
end markets, but with a backlog of almost $80 million, the segment is well
positioned for the future. The company will continue to use its strong cash flow
to make acquisitions and develop new products enhancing its growth prospects.
SEALED AIR CORP. ($2.00 CV. PFD., SER. A) is a global manufacturer and
distributor of a wide range of protective and specialty packaging materials and
systems for industrial, food and consumer products. The company is well
positioned to benefit from case-ready packaging and electronic commerce. Sealed
Air is a strong free cash flow generator, which will be used to pay down debt,
make niche acquisitions, and buyback stock.
SEQUA CORP. ($5.00 CV. PFD.) is a diversified company with businesses in
aerospace, pre-paint metal, specialty chemical and printing and cannery
equipment. Chromalloy Gas Turbine, Sequa's aerospace business, is the largest
independent supplier of overhaul and repair to jet and industrial gas turbine
engines. We believe this business is attractive to original equipment engine
manufacturers like General Electric and Pratt & Whitney who are looking to grow
their replacement parts business. With roughly $800 million in revenues, we
estimate Chromalloy's private market value to be near the entire public value of
Sequa.
STANDARD MOTOR PRODUCTS INC. ("SMP") (SUB. DEB. CV., 6.75%, 07/15/09),
headquartered in Long Island City, New York, supplies functional replacement
parts for the engine management, electrical and climate control systems of cars,
trucks and buses. The company services all makes and models, both new and old
cars, imported and domestic. SMP has two primary divisions--engine management
and temperature control--and believes it is the number one supplier to the North
American aftermarket in each of these lines.
6
U.S. CELLULAR CORP. (SUB. DEB. CV., ZERO CPN., 06/15/15) is an 81% owned
subsidiary of TDS and is a wireless carrier with cellular licenses covering over
25 million people primarily in rural and suburban markets. The company currently
serves about 3 million subscribers and is an important roaming partner for
national wireless carriers such as AT&T Wireless Group (AWE - $17.3125 - NYSE),
Verizon Communications (VZ - $50.125 -NYSE), and Sprint PCS Group (PCS -
$20.4375 - NYSE).
USA NETWORKS INC. (SUB. DEB. CV., 7.00%, 07/01/03), through its subsidiaries,
engages in diversified media and electronic commerce businesses that include
electronic retailing, ticketing operations and television broadcasting. Chairman
and CEO Barry Diller has brought together under one umbrella the USA Network,
the Sci-Fi Channel, USA Networks Studios, USA Broadcasting, The Home Shopping
Network and the Ticketmaster Group. The strategy is to integrate these assets,
leveraging programming, production capabilities and electronic commerce across
the entire distribution platform.
WASTE MANAGEMENT INC. (SUB. DEB. CV., 4.00%, 02/01/02) merged with USA Waste in
1998, and is now the largest solid waste company in North America. The company
provides a number of services, including collection, transfer, landfill, and
recycling services for a diverse customer base, notably the municipal,
residential, commercial, and industrial markets. Services are provided
throughout the United States as well as in Canada, Mexico, and Puerto Rico.
Internationally, the company operates in Europe, the Pacific Rim, and in South
America. In addition, Waste Management is a leading developer, operator, and
owner of waste-to-energy facilities in the U.S.
STOCK REPURCHASE PLAN
The Fund is authorized to repurchase up to 500,000 shares of the Fund's
outstanding common shares. Pursuant to this stock repurchase plan, the
Convertible Securities Fund may from time to time purchase shares of its capital
stock in the open market when the shares are trading at a discount of 10% or
more from the net asset value of the shares. In total, through December 31,
2000, 305,200 shares have been repurchased in the open market under this stock
repurchase plan.
COMMON STOCK 8% DISTRIBUTION POLICY
The Fund continues to maintain its 8% Distribution Policy whereby the
Convertible Securities Fund pays out to common stock shareholders 8% of its
average net assets each year. Pursuant to this policy, the Convertible
Securities Fund distributed $0.20 per share in each of the first three quarters
and $0.70 per share on December 26, 2000. The next distribution is scheduled for
March 2001.
8.00% CUMULATIVE PREFERRED STOCK - DIVIDENDS
The Fund's 8.00% Cumulative Preferred Stock paid a cash distribution on
December 26, 2000 of $0.50 per share. For the year ended December 31, 2000,
Preferred Stock shareholders received distributions totaling $2.00, which is the
annual dividend rate per share on the Preferred Stock. The next distribution is
scheduled for March 2001.
WWW.GABELLI.COM
Please visit us on the Internet. Our homepage at http://www.gabelli.com
contains information about Gabelli Asset Management Inc., the Gabelli Mutual
Funds, IRAs, 401(k)s, quarterly reports, closing prices and other current news.
You can send us e-mail at info@gabelli.com.
7
In our efforts to bring our shareholders more timely portfolio
information, Gabelli Fund's portfolio managers regularly participate in chat
sessions at www.gabelli.com as reflected below.
WHO WHAT WHEN
----- ------ ------
Mario Gabelli Chief Investment Officer First Monday of each month
Howard Ward Large Cap Growth First Tuesday of each month
Barbara Marcin Large Cap Value Last Wednesday of each month
SECTOR/SPECIALTY 2nd and 3rd Wednesday of each month
--------------
Tim O'Brien Utilities Industry
Caesar Bryan International Investing
Ivan Arteaga Telecom and Media
Hart Woodson Global Convertibles
The second and third Wednesday of each month will feature portfolio
managers responsible for our more focused offerings. All chat sessions are held
at 4:15 PM ET. Arrive early as attendance is limited. Days and times may vary
based on portfolio manager availability.
You may sign up for our HIGHLIGHTS email newsletter at www.gabelli.com and
receive early notice of chat sessions, closing mutual fund prices, news events
and media sightings.
IN CONCLUSION
Convertible securities proved their value in this year's distressed
equities market. Yield helped support convertible prices as underlying common
stock prices declined sharply. Cash was also a valuable asset this year. Looking
ahead, we believe more reasonable equities valuations and still favorable
economic fundamentals will help stocks recover. In the interim, the yield from
our convertible securities portfolio will continue to nourish the portfolio.
Sincerely,
/S/ SIGNATURE
MARIO J. GABELLI
President and Chief Investment Officer
February 1, 2001
--------------------------------------------------------------------------------
TOP TEN CONVERTIBLE HOLDINGS
DECEMBER 31, 2000
-----------------
Hilton Hotels Corp. (Sub. Deb. Cv., 5.00%, 05/15/06)
Standard Motor Products (Sub. Deb. Cv., 6.75%, 07/15/09)
Citizens Communications Co. (5.00% Cv. Pfd.)
Kaman Corp. (Sub. Deb. Cv., 6.00%, 03/15/12)
Waste Management Inc. (Sub. Deb. Cv., 4.00%, 02/01/02)
Sealed Air Corp. ($2.00 Cv. Pfd., Ser. A)
Sequa Corp. ($5.00 Cv. Pfd.)
Robbins &Myers Inc. (Sub. Deb. Cv., 6.50%, 09/01/03)
Coltec Capital Trust (5.25% Cv. Pfd.)
Trans-Lux Corp. (Sub. Deb. Cv., 7.50%, 12/01/06)
--------------------------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period of this report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
8
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2000
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ----- ------
CONVERTIBLE CORPORATE BONDS -- 27.8%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 4.4%
$ 700,000 Exide Corp. Sub. Deb. Cv.
2.90%, 12/15/05 (b) ................ $ 500,487 $ 293,563
350,000 Pep Boys - Manny, Moe
& Jack Sub. Deb. Cv.
Zero Cpn., 09/20/11 ................ 198,236 202,125
9,000,000 Standard Motor Products Inc.
Sub. Deb. Cv.
6.75%, 07/15/09 .................... 6,994,570 4,252,500
------------ ------------
7,693,293 4,748,188
------------ ------------
AVIATION: PARTS AND SERVICES -- 3.6%
4,199,000 Kaman Corp. Sub. Deb. Cv.
6.00%, 03/15/12 .................... 4,026,414 3,836,836
------------ ------------
BROADCASTING -- 0.0%
15,000 Granite Broadcasting Corp.,
Sub. Deb. Cv.
8.88%, 05/15/08 .................... 6,929 9,225
------------ ------------
BUSINESS SERVICES -- 2.1%
900,000 BBN Corp. Sub. Deb. Cv.
6.00%, 04/01/12(a) ................. 881,454 870,750
1,800,000 Trans-Lux Corp.
Sub. Deb. Cv.
7.50%, 12/01/06 .................... 1,730,376 1,440,000
------------ ------------
2,611,830 2,310,750
------------ ------------
COMPUTER SOFTWARE AND SERVICES -- 0.1%
400,000 QuadraMed Corp.
Sub. Deb. Cv.
5.25%, 05/01/05 .................... 265,197 80,500
------------ ------------
CONSUMER PRODUCTS -- 0.4%
1,500,000 Pillowtex Corp. Sub. Deb. Cv.
6.00%, 03/15/12+ ................... 120,531 3,750
750,000 Standard Commercial Corp.
Sub. Deb. Cv.
7.25%, 03/31/07 .................... 639,569 485,625
------------ ------------
760,100 489,375
------------ ------------
CONSUMER SERVICES -- 0.7%
Ogden Corp. Sub. Deb. Cv.
750,000 6.00%, 06/01/02 .................... 696,680 664,687
50,000 6.00%, 06/01/02 (Registered) ....... 44,938 43,750
------------ ------------
741,618 708,437
------------ ------------
ELECTRONIC EQUIPMENT -- 0.0%
ASM Lithography
Holding Cv.
40,000 2.50%, 04/09/05(d) ................. 21,136 22,630
10,000 2.50%, 04/09/05(b)(d) .............. 5,284 5,657
------------ ------------
26,420 28,287
------------ ------------
ENERGY AND UTILITIES -- 1.5%
200,000 Devon Energy Corp.
Sub. Deb. Cv.
4.95%, 08/15/08 .................... 193,467 192,250
200,000 Friede Goldman Halter Inc.
Sub. Deb. Cv.
4.50%, 09/15/04 .................... 126,980 105,000
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ----- ------
$ 1,100,000 Moran Energy Inc.
Sub. Deb. Cv.
8.75%, 01/15/08 .................... $ 766,926 $ 1,040,875
250,000 Texaco Capital Inc. Cv.
3.50%, 08/05/04 .................... 243,842 244,291
------------ ------------
1,331,215 1,582,416
------------ ------------
ENTERTAINMENT -- 0.7%
800,000 USA Networks Inc.
Sub. Deb. Cv.
7.00%, 07/01/03 .................... 765,467 807,000
------------ ------------
ENVIRONMENTAL SERVICES -- 3.5%
3,904,000 Waste Management Inc.
Sub. Deb. Cv.
4.00%, 02/01/02 .................... 3,719,888 3,777,120
------------ ------------
EQUIPMENT AND SUPPLIES -- 1.7%
1,950,000 Robbins & Myers Inc.
Sub. Deb. Cv.
6.50%, 09/01/03 .................... 1,920,234 1,889,062
------------ ------------
FOOD AND BEVERAGE -- 0.1%
110,000 Boston Chicken Inc.
Sub. Deb. Cv.
7.75%, 05/01/04+ ................... 42,444 687
150,000 Chiquita Brands
International Inc. Cv.
7.00%, 03/28/01 .................... 147,197 132,000
------------ ------------
189,641 132,687
------------ ------------
HEALTH CARE -- 0.1%
10,000 Inhale Therapeutic Systems
Sub. Deb. Cv.
6.75%, 10/13/06(b) ................. 10,396 31,887
150,000 Sabratek Corp.
Sub. Deb. Cv.
Zero Cpn., 04/15/05+ ............... 79,926 37,687
------------ ------------
90,322 69,574
------------ ------------
HOTELS AND GAMING -- 4.2%
5,300,000 Hilton Hotels Corp.
Sub. Deb. Cv.
5.00%, 05/15/06 .................... 4,651,641 4,511,625
------------ ------------
PAPER AND FOREST PRODUCTS -- 1.2%
200,000 Riverwood International Corp.
Sub. Deb. Cv.
6.75%, 09/15/03 .................... 199,802 230,890
1,200,000 Thermo Fibertek Inc. Cv.
4.50%, 07/15/04(b) ................ 1,030,289 1,059,000
------------ ------------
1,230,091 1,289,890
------------ ------------
PUBLISHING -- 1.1%
650,000 News America Holdings Inc.
Sub. Deb. Cv.
Zero Cpn., 03/31/02 ................ 591,584 918,619
200,000 Times Mirror Ltd.
Sub. Deb. Cv.
Zero Cpn., 04/15/17 ................ 102,112 130,750
50,000 United News & Media plc
Sub. Deb. Cv.
6.13%, 12/03/03(c) ................. 85,567 91,219
------------ ------------
779,263 1,140,588
------------ ------------
See accompanying notes to financial statements.
9
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2000
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ----- ------
CONVERTIBLE CORPORATE BONDS (CONTINUED)
RETAIL -- 0.1%
$ 60,000 Costco Companies Inc.
Sub. Deb. Cv.
Zero Cpn., 08/19/17 ................ $ 42,641 $ 57,675
150,000 Rite Aid Corp.
Sub. Deb Cv.
5.25%, 09/15/02 .................... 55,520 42,750
------------ ------------
98,161 100,425
------------ ------------
SPECIALTY CHEMICALS -- 1.0%
900,000 IVAX Corp.
Sub. Deb. Cv.,
5.50%, 05/15/07(b) ................. 900,000 1,129,500
------------ ------------
TECHNOLOGY -- 0.4%
400,000 Thermo Electron Corp.
Sub. Deb. Cv.
4.25%, 01/01/03(b) ................. 370,360 399,500
------------ ------------
TELECOMMUNICATIONS -- 0.4%
80,000 Amnex Inc. Sub. Deb. Cv.
8.50%, 09/25/02+(b) ................ 75,677 3,592
90,000 Bell Atlantic Corp. Cv.
4.25%, 09/15/05(b) ................. 98,207 92,925
500,000 Rogers Communications Inc.
Sub. Deb. Cv.
2.00%, 11/26/05 .................... 368,399 376,875
------------ ------------
542,283 473,392
------------ ------------
WIRELESS COMMUNICATIONS -- 0.5%
900,000 U.S. Cellular Corp.
Sub. Deb. Cv.
Zero Cpn., 06/15/15 ................ 606,144 522,000
------------ ------------
TOTAL CONVERTIBLE
CORPORATE BONDS .................... 33,326,511 30,036,377
------------ ------------
SHARES
------
CONVERTIBLE PREFERRED STOCKS -- 14.4%
AVIATION: PARTS AND SERVICES -- 1.7%
Coltec Capital Trust
25,000 5.25% Cv. Pfd. ..................... 1,032,875 1,032,825
21,000 5.25% Cv. Pfd.(b) .................. 985,500 841,312
------------ ------------
2,018,375 1,874,137
------------ ------------
BUSINESS SERVICES -- 1.0%
Cendant Corp.
72,000 1.30% Cv. Pfd. ..................... 1,783,462 936,000
8,000 7.50% Cv. Pfd. ..................... 149,337 109,000
------------ ------------
1,932,799 1,045,000
------------ ------------
CABLE -- 0.2%
1,000 MediaOne Group Inc.
4.50% Cv. Pfd., Ser. D ............. 26,800 24,438
UnitedGlobalCom Inc.
2,000 7.00% Cv. Pfd. (b) ................. 49,500 41,750
8,000 7.00% Cv. Pfd., Ser. C ............. 372,600 167,000
------------ ------------
448,900 233,188
------------ ------------
DIVERSIFIED INDUSTRIAL -- 0.5%
2,000 GATX Corp.
$2.50 Cv. Pfd. ..................... 259,050 500,000
5,000 WHX Corp.
6.50% Cv. Pfd., Ser. A ............. 86,975 17,500
MARKET
SHARES COST VALUE
------ ----- ------
500 WHX Corp.
$3.75 Cv. Pfd., Ser. B ............. $ 2,656 $ 1,719
------------ ------------
348,681 519,219
------------ ------------
ENERGY AND UTILITIES -- 0.2%
2,000 KCSEnergy Inc.
5.00% Cv. Pfd.+++(a) ............... 200,000 200,000
------------ ------------
ENTERTAINMENT -- 0.3%
2,500 Metromedia International
Group Inc.
7.25% Cv. Pfd. ..................... 70,031 34,750
5,000 Seagram Co.
7.50% Cv. Pfd. ..................... 250,625 260,625
------------ ------------
320,656 295,375
------------ ------------
EQUIPMENT AND SUPPLIES -- 1.8%
26,600 Sequa Corp.
$5.00 Cv. Pfd. ..................... 2,053,472 1,971,725
------------ ------------
HEALTH CARE -- 0.2%
4,200 Pharmacia Corp.
6.50% Cv. Pfd. ..................... 181,635 217,613
------------ ------------
PAPER AND FOREST PRODUCTS -- 2.0%
65,000 Sealed Air Corp.
$2.00 Cv. Pfd., Ser. A ............. 2,471,918 2,096,250
------------ ------------
PUBLISHING -- 0.6%
15,000 Reader's Digest
Association Inc.
$1.9336 Cv. Pfd. ................... 382,588 522,188
5,000 Tribune Co.
6.25% Cv. Pfd. ..................... 92,750 85,313
------------ ------------
475,338 607,501
------------ ------------
RETAIL -- 0.4%
4,000 CVS Corp.
6.00% Cv. Pfd. ..................... 351,200 399,250
------------ ------------
SPECIALTY CHEMICALS -- 0.0%
3,000 Merrill Lynch & Co.
(IMC Global)
6.25% Cv. Pfd. ..................... 52,962 46,125
------------ ------------
TELECOMMUNICATIONS -- 4.6%
6,000 BroadWing Inc.
6.75% Cv. Pfd., Ser. B ............. 286,550 253,500
80,000 Citizens Communications Co.
5.00% Cv. Pfd. ..................... 3,977,110 4,240,000
10,000 Philippine Long Distance
Telephone Co.
$3.50 Cv. Pfd., Ser. III ........... 446,144 352,500
RSL Communications Ltd.
2,000 7.50% Cv. Pfd. ..................... 18,620 750
1,000 7.50% Cv. Pfd.(b) .................. 36,250 375
1,500 TCI Pacific
Communications Inc.
5.00% Cv. Pfd. ..................... 134,837 165,000
------------ ------------
4,899,511 5,012,125
------------ ------------
WIRELESS COMMUNICATIONS -- 0.9%
6,500 VoiceStream Wireless Corp.
7.00% Cv. Pfd. ..................... 192,645 973,375
------------ ------------
TOTAL CONVERTIBLE
PREFERRED STOCKS ................... 15,948,092 15,490,883
------------ ------------
See accompanying notes to financial statements.
10
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2000
MARKET
SHARES COST VALUE
------ ----- ------
COMMON STOCKS -- 12.5%
AGRICULTURE -- 0.3%
6,000 Agribrands International Inc.+ ....... $ 320,550 $ 321,000
------------ ------------
AVIATION: PARTS AND SERVICES -- 0.3%
18,000 Kaman Corp., Cl. A ................... 181,321 303,750
------------ ------------
BROADCASTING -- 0.0%
40,000 Granite Broadcasting Corp.+ .......... 42,500 42,500
------------ ------------
BUSINESS SERVICES -- 0.7%
20,000 ACNielsen Corp.+ ..................... 726,000 725,000
------------ ------------
CONSUMER PRODUCTS -- 2.6%
150,000 Shaw Industries Inc. ................. 2,809,187 2,840,625
------------ ------------
ENERGY AND UTILITIES -- 4.0%
20,000 AGL Resources Inc. ................... 361,010 441,250
100,000 Azurix Corp.+ ........................ 823,750 818,750
23,000 BP Amoco plc, ADR .................... 779,601 1,101,125
18,000 CH Energy Group Inc. ................. 648,256 805,500
20,000 MCN Energy Group Inc. ................ 478,813 553,750
10,000 NiSource Inc.+ ....................... 20,000 27,500
10,000 Northeast Utilities .................. 217,387 242,500
10,000 Progress Energy Inc.+ ................ 5,200 4,500
3,500 SJW Corp. ............................ 418,629 357,000
------------ ------------
3,752,646 4,351,875
------------ ------------
EQUIPMENT AND SUPPLIES -- 0.6%
50,000 Fedders Corp., Cl. A ................. 310,916 209,375
6,000 Litton Industries Inc.+ .............. 469,095 472,125
------------ ------------
780,011 681,500
------------ ------------
FINANCIAL SERVICES -- 0.5%
24,000 Argonaut Group Inc. .................. 596,139 504,000
------------ ------------
FOOD AND BEVERAGE -- 2.9%
23,000 IBP Inc. ............................. 582,275 615,250
60,000 Keebler Foods Co. .................... 2,468,781 2,486,250
------------ ------------
3,051,056 3,101,500
------------ ------------
RETAIL -- 0.1%
5,000 AutoNation Inc.+ ..................... 49,836 30,000
7,500 Delhaize America
Inc., Cl. A ........................ 144,141 132,656
------------ ------------
193,977 162,656
------------ ------------
TELECOMMUNICATIONS -- 0.2%
1,593 RSL Communications
Ltd., Cl. A+ ....................... 1,527 271
10,000 Sprint Corp.+ ........................ 104,330 203,125
------------ ------------
105,857 203,396
------------ ------------
WIRELESS COMMUNICATIONS -- 0.3%
14,000 Sprint Corp. (PCS Group)+ ............ 138,825 286,125
------------ ------------
TOTAL
COMMON STOCKS ...................... 12,698,069 13,523,927
------------ ------------
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ----- ------
U.S. GOVERNMENT OBLIGATIONS -- 47.0%
$51,114,000 U.S. Treasury Bills,
5.63% to 6.23%++,
due 01/04/01 to 03/29/01 ........... $ 50,802,058 $ 50,800,845
------------ ------------
TOTAL INVESTMENTS -- 101.7% ..................... $112,774,730 109,852,032
============
OTHER ASSETS, LIABILITIES
AND LIQUIDATION VALUE OF
CUMULATIVE PREFERRED STOCK -- (29.4%) ........................ (31,786,155)
------------
NET ASSETS - COMMON STOCK -- 72.3%
(7,787,745 common shares outstanding) ........................ 78,065,877
------------
NET ASSETS - PREFERRED STOCK -- 27.7%
(1,200,000 preferred shares outstanding) ..................... 30,000,000
------------
TOTAL NET ASSETS -- 100.0% ..................................... $108,065,877
============
NET ASSET VALUE PER COMMON SHARE
($78,065,877 [DIVIDE] 7,787,745 shares outstanding) .......... $10.02
======
MARKET
SHARES PROCEEDS VALUE
------ -------- ------
SECURITIES SOLD SHORT
22,000 IVAX Corp. ......................... (993,601) $ (842,600)
============
------------------
For Federal tax purposes:
Aggregate cost .......................................... $113,079,017
============
Gross unrealized appreciation ........................... $ 3,777,089
Gross unrealized depreciation ........................... (7,004,074)
------------
Net unrealized depreciation ............................. $ (3,226,985)
============
------------------
(a) Security fair valued under procedures established by the Board of
Directors.
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At December
31, 2000, the market value of Rule 144A securities amounted to $3,899,061
or 3.6% of total net assets.
(c) Principal amount denoted in British Pounds.
(d) Principal amount denoted in Euros.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
+++ When as and if issued security.
ADR - American Depositary Receipt
See accompanying notes to financial statements.
11
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2000
ASSETS:
Investments, at value
(Cost $112,774,730) ...................... $109,852,032
Cash and foreign currency, at value
(Cost $318,794) .......................... 317,550
Dividends and interest receivable .......... 829,760
Receivable for investments sold ............ 1,164,687
Other assets ............................... 10,679
------------
TOTAL ASSETS ............................... 112,174,708
------------
LIABILITIES:
Securities sold short (proceeds $993,601) .. $ 842,600
Payable for investments purchased .......... 585,737
Dividends payable .......................... 2,481,903
Payable for investment advisory fee ........ 63,604
Payable to custodian ....................... 6,075
Accrued expenses and other liabilities ..... 128,912
------------
TOTAL LIABILITIES .......................... 4,108,831
------------
NET ASSETS ................................. $108,065,877
============
NET ASSETS CONSIST OF:
Cumulative Preferred Stock (8.00%, $25
liquidation value, $0.001 par value,
2,000,000 shares authorized with
1,200,000 shares issued and
outstanding) redemption value ........... $ 30,000,000
Capital stock, at par value ................ 7,787
Additional paid-in capital ................. 80,830,382
Accumulated net investment income .......... 158,341
Accumulated distributions in excess of
net realized gain on investments and
foreign currency transactions ........... (157,735)
Net unrealized depreciation on
investments, securities sold short
and foreign currency transactions ....... (2,772,898)
------------
TOTAL NET ASSETS ........................ $108,065,877
============
NET ASSET VALUE PER COMMON SHARE
($78,065,877 [DIVIDE] 7,787,745 shares
issued and outstanding; 100,000,000
shares authorized of $0.001 par value) .. $10.02
======
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
INVESTMENT INCOME:
Dividends (net of foreign taxes
of $5,948) ............................ $ 1,426,052
Interest ................................ 5,508,325
------------
TOTAL INVESTMENT INCOME ................. 6,934,377
------------
EXPENSES:
Investment advisory fees ................ 822,916
Shareholder services fees ............... 110,022
Payroll ................................. 77,910
Shareholder communications .............. 99,829
Directors' fees ......................... 60,013
Legal and audit fees .................... 40,633
Custodian fees .......................... 32,758
Miscellaneous expenses .................. 41,053
------------
TOTAL EXPENSES .......................... 1,285,134
------------
NET INVESTMENT INCOME ................... 5,649,243
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS, SECURITIES SOLD SHORT
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investments and
foreign currency transactions ........ 7,129,769
Net change in unrealized appreciation
(depreciation) on investments,
securities sold short and foreign
currency transactions ................ (11,116,303)
------------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS, SECURITIES SOLD SHORT
AND FOREIGN CURRENCY TRANSACTIONS .... (3,986,534)
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ...................... $ 1,662,709
============
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2000 1999
----------- -----------
OPERATIONS:
Net investment income ...................................................... $ 5,649,243 $ 4,058,348
Net realized gain on investments and foreign currency transactions ......... 7,129,769 6,671,304
Net change in unrealized appreciation (depreciation) of investments,
securities sold short and foreign currency transactions ................. (11,116,303) (628,418)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....................... 1,662,709 10,101,234
------------ ------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS:
Net investment income ...................................................... (1,042,230) (908,491)
Net realized gains ......................................................... (1,357,770) (1,491,509)
------------ ------------
TOTAL DISTRIBUTIONS ........................................................ (2,400,000) (2,400,000)
------------ ------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
Net investment income ...................................................... (4,434,112) (3,050,169)
Net realized gains ......................................................... (5,582,443) (4,898,574)
Distributions in excess of net investment income ........................... -- (22,920)
Distributions in excess of net realized gains .............................. (158,945) (179,986)
------------ ------------
TOTAL DISTRIBUTIONS ........................................................ (10,175,500) (8,151,649)
------------ ------------
CAPITAL SHARE TRANSACTIONS -- NET: ............................................ (1,200,514) (96,215)
----------- ------------
NET DECREASE IN NET ASSETS ................................................. (12,113,305) (546,630)
NET ASSETS:
Beginning of period ........................................................ 120,179,182 120,725,812
------------ ------------
End of period (Including undistributed (distributions in excess of)
net investment income of $158,341 and $(13,350), respectively) .......... $108,065,877 $120,179,182
============ ============
See accompanying notes to financial statements.
12
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION. The Gabelli Convertible Securities Fund, Inc. (the "Fund") is a
closed-end diversified management investment company whose investment objective
is to seek a high level of total return through a combination of current income
and capital appreciation by investing in convertible securities. The Corporation
was incorporated in Maryland on December 19, 1988 as an open-end diversified
management investment company and commenced operations on July 3, 1989. The
Board of Directors, upon approval at a special meeting of shareholders held on
February 17, 1995, voted to approve the conversion of the Fund to closed-end
status, effective March 31, 1995.
2. SIGNIFICANT ACCOUNTING POLICIES. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
SECURITY VALUATION. Portfolio securities listed or traded on a nationally
recognized securities exchange, quoted by the National Association of Securities
Dealers Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are
valued at the last sale price on that exchange as of the close of business on
the day the securities are being valued (if there were no sales that day, the
security is valued at the average of the closing bid and asked prices or, if
there were no asked prices quoted on that day, then the security is valued at
the closing bid price on that day). All other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest average of the bid and asked prices. If there were no asked prices quoted
on that day, then the security is valued at the closing bid price. Portfolio
securities traded on more than one national securities exchange or market are
valued according to the broadest and most representative market, as determined
by the Adviser. Securities and assets for which market quotations are not
readily available are valued at their fair market value as determined in good
faith under procedures established by and under the general supervision of the
Board of Directors. Short term debt securities with remaining maturities of 60
days or less are valued at amortized cost, unless the Directors determine such
does not reflect the securities' fair value, in which case these securities will
be valued at their fair value as determined by the Directors. Debt instruments
having a greater maturity are valued at the highest bid price obtained from a
dealer maintaining an active market in those securities. Options are valued at
the last sale price on the exchange on which they are listed. If no sales of
such options have taken place that day, they will be valued at the mean between
their closing bid and asked prices.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
government securities dealers recognized by the Federal Reserve Board, with
member banks of the Federal Reserve System or with other brokers or dealers that
meet credit guidelines established by the Adviser and reviewed by the Board of
Directors. Under the terms of a typical repurchase agreement, the Fund takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Fund's holding period.
The Fund will always receive and maintain securities as collateral whose market
value, including accrued interest, will be at least equal to 100% of the dollar
amount invested by the Fund in each agreement. The Fund will make payment for
such securities only upon physical delivery or upon evidence of book entry
transfer of the collateral to the account of the custodian. To the extent that
any repurchase transaction exceeds one business day, the value of the collateral
is marked-to-market on a daily basis to maintain the adequacy of the collateral.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may engage in forward foreign
exchange contracts for hedging a specific transaction with respect to either the
currency in which the transaction is denominated or another currency as deemed
appropriate by the Adviser. Forward foreign currency contracts are valued at the
forward rate and are marked-to-market daily. The change in market value is
recorded by the Fund as an unrealized gain or loss. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed.
The use of forward foreign currency contracts does not eliminate
fluctuations in the underlying prices of the Fund's portfolio securities, but it
does establish a rate of exchange that can be achieved in the future. Although
forward foreign currency contracts limit the risk of loss due to a decline in
the value of the hedged currency, they also limit any potential gain that might
result should the value of the currency increase. In addition, the Fund could be
exposed to risks if the counterparties to the contracts are unable to meet the
terms of their contracts. At December 31, 2000, the Fund held no forward foreign
currency contracts.
FUTURES CONTRACTS. The Fund may engage in futures contracts for the
purpose of hedging against changes in the value of its portfolio securities and
in the value of securities it intends to purchase. Upon entering into a futures
contract, the Fund is required to deposit with the broker an amount of cash or
cash equivalents equal to a certain percentage of the contract amount. This is
known as the "initial margin." Subsequent payments ("variation margin") are made
or received by the Fund each day, depending on the daily
13
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
fluctuation of the value of the contract. The daily changes in the contract are
recorded as unrealized gains or losses. The Fund recognizes a realized gain or
loss when the contract is closed. At December 31, 2000, there were no open
futures contracts.
There are several risks in connection with the use of futures contracts as
a hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in value of the hedged investments. In addition, there is the risk that
the Fund may not be able to enter into a closing transaction because of an
illiquid secondary market.
SHORT SALES. The Fund is authorized to engage in short sales, which
obligate the Fund to replace the security borrowed by purchasing the security at
the current market value sometime in the future. The Fund would incur a loss if
the price of the security increases between the date of the short sale and the
date on which the Fund replaces the borrowed security. The Fund would realize a
gain if the price of the security declines between those dates. Until the Fund
replaces the borrowed security, the Fund will maintain a segregated account with
cash and/or U.S. Government securities sufficient to cover its short position on
a daily basis.
FOREIGN CURRENCY TRANSLATION. The books and records of the Fund are
maintained in United States (U.S.) dollars. Foreign currencies, investments and
other assets and liabilities are translated into U.S. dollars at the exchange
rates prevailing at the end of the period, and purchases and sales of investment
securities, income and expenses are translated at the exchange rate prevailing
on the respective dates of such transactions. Unrealized gains and losses, which
result from changes in foreign exchange rates and/or changes in market prices of
securities, have been included in unrealized appreciation/depreciation on
investments. Net realized foreign currency gains and losses resulting from
changes in exchange rates include foreign currency gains and losses between
trade date and settlement date on investment securities transactions, foreign
currency transactions and the difference between the amounts of interest and
dividends recorded on the books of the Fund and the amounts actually received.
The portion of foreign currency gains and losses related to fluctuation in
exchange rates between the initial trade date and subsequent sale trade date is
included in realized gain/(loss) on investments.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
accounted for on the trade date with realized gain or loss on investments
determined by using the identified cost method. Interest income (including
amortization of premium and accretion of discount) is recorded as earned.
Dividend income is recorded on the ex-dividend date.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions
to shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatment of income and gains
on various investments securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund. Distributions to
shareholders of Cumulative Preferred Stock are accrued on a daily basis and are
determined as described in Note 3.
For the year ended December 31, 2000, reclassifications were made to
decrease accumulated net investment income for $1,210 with an offsetting
adjustment to accumulated distributions in excess of net realized gain on
investments and foreign currency transactions.
PROVISION FOR INCOME TAXES. The Fund intends to continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended. As a result, a Federal income tax provision is not required.
3. CAPITAL. The Articles of Incorporation, dated December 19, 1988, permit the
Fund to issue 100,000,000 shares (par value $0.001) of common stock. In
addition, the Fund has been authorized to issue up to 2,000,000 shares of
Preferred Stock of which 1,200,000 shares has been designated as $0.001 par
value 8% Cumulative Preferred Stock. Dividends on shares of the Cumulative
Preferred Stock are cumulative. The Fund is required to meet certain asset
coverage tests with respect to the Cumulative Preferred Stock. If the Fund fails
to meet these requirements and does not correct such failure, the Fund may be
required to redeem, in part or in full, the Cumulative Preferred Stock at a
redemption price of $25.00 per share plus an amount equal to the accumulated and
unpaid dividends whether or not declared on such shares in order to meet these
requirements. Additionally, failure to meet the foregoing asset requirement
could restrict the Fund's ability to pay dividends to Common Shareholders and
could lead to sales of portfolio securities at inopportune times. The Preferred
Stock is callable at the redemption price at the option of the Fund after May
15, 2002. This Cumulative Preferred Stock introduced leverage into the capital
structure of the Fund. This leverage tends to magnify both the risks and
opportunities to Common Shareholders. At December 31, 2000, the 1,200,000 shares
of 8% Cumulative Preferred Stock outstanding accrued dividends in the amount of
$40,000. The income received on the Fund's assets may vary in a manner unrelated
to the fixed rate, which could have either a beneficial or detrimental impact on
net investment income and gains available to Common Shareholders.
14
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Fund shall not declare dividends or make other distributions on shares
of Common Stock or purchase any such shares if at the time of the declaration,
distribution or purchase, asset coverage with respect to the outstanding
Preferred Stock would be less than 200%.
The holders of Preferred Stock have voting rights equivalent to those of
the holders of Common Stock (one vote per share) and will vote together with
holders of shares of Common Stock as a single class. In addition, the Investment
Company Act of 1940, as amended, requires that, along with approval of the
holders of a majority of any outstanding common shares, approval of the holders
of a majority of any outstanding preferred shares, voting separately as a class,
would be required to (a) adopt any plan of reorganization that would adversely
affect the Preferred Stock, and (b) take any action requiring a vote of security
holders, including, among other things, changes in the Fund's subclassification
as a closed-end investment company or changes in its fundamental investment
restrictions.
The Adviser has been authorized to repurchase on behalf of the Fund up to
500,000 Common Shares of the Fund in the open market, whenever the shares are
trading at a discount to net asset value of ten per cent or more. For the year
ended December 31, 2000, the Fund repurchased 124,900 shares at a cost of
$1,200,514 and at an average discount of 13.71%. During the fiscal year ended
December 31, 1999, the Fund repurchased 8,900 shares at a cost of $96,215 and at
an average discount of 10.36%. All shares repurchased have been retired.
4. INVESTMENT ADVISORY AGREEMENT. The Fund has entered into an investment
advisory agreement (the "Advisory Agreement") with the Adviser which provides
that the Fund will pay the Adviser a fee, computed daily and paid monthly, at
the annual rate of 1.00% of the value of the Fund's average daily net assets. In
accordance with the Advisory Agreement, the Adviser provides a continuous
investment program for the Fund's portfolio, oversees the administration of all
aspects of the Fund's business and affairs and pays the compensation of all
Officers and Directors of the Fund who are its affiliates.
The Adviser has agreed not to accrue the management fee on the incremental
net assets attributable to the liquidation value of the Cumulative Preferred
Stock if the total net asset value return of the common shares of the Fund,
including distributions and the advisory fee subject to reduction, does not
exceed the stated dividend rate of the Cumulative Preferred Stock. During the
year ended December 31, 2000, the Fund did not achieve a total return in excess
of the stated dividend rate and, thus, such management fees were not earned.
5. PORTFOLIO SECURITIES. Purchases and sales of securities for the year ended
December 31, 2000, other than short-term securities, aggregated $119,336,987 and
$126,127,694, respectively.
6. TRANSACTIONS WITH AFFILIATES. During the year ended December 31, 2000, the
Fund paid brokerage commissions of $116,959 to Gabelli & Company, Inc. and its
affiliates.
15
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH PERIOD: YEAR ENDED DECEMBER 31,
-------------------------------------------------------
OPERATING PERFORMANCE: 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------
Net asset value, beginning of period ................. $ 11.40 $ 11.45 $ 11.48 $ 11.08 $ 11.01
-------- -------- -------- -------- -------
Net investment income ................................ 0.72 0.51 0.53 0.49 0.49
Net realized and unrealized gain (loss)
on investments .................................... (0.52) 0.77 0.65 1.23 0.31
-------- -------- -------- -------- -------
Total from investment operations ..................... 0.20 1.28 1.18 1.72 0.80
-------- -------- -------- -------- -------
Increase in net assets from capital
share transactions ............................... 0.02 -- 0.01 0.01 --
-------- -------- -------- -------- -------
Offering expenses charged to additional
paid-in capital .................................... -- -- -- (0.18) --
-------- -------- -------- -------- -------
DISTRIBUTIONS:
PREFERRED SHARES
Distributions from net investment income ............. (0.13) (0.11) (0.13) (0.08) --
Distributions from net realized gains on investments . (0.17) (0.19) (0.17) (0.11) --
COMMON SHARE
Distributions from net investment income ............. (0.57) (0.39) (0.38) (0.40) (0.49)
Distributions from net realized gains on investments . (0.71) (0.62) (0.50) (0.56) (0.24)
Distributions in excess of net investment income ..... -- (0.00)(e) (0.01) -- --
Distributions in excess of net realized gains ........ (0.02) (0.02) (0.03) -- --
-------- -------- -------- -------- -------
Total distributions .................................. (1.60) (1.33) (1.22) (1.15) (0.73)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD ....................... $ 10.02 $ 11.40 $ 11.45 $ 11.48 $ 11.08
======== ======== ======== ======== =======
Market value, end of period .......................... $ 9.13 $ 10.56 $ 11.25 $ 10.31 $ 9.25
======== ======== ======== ======== =======
Total Net Asset Value Return+(a) ..................... 0.0% 9.4% 8.3% 13.5% 8.4%
Total Investment Return+(b) .......................... (1.7)% 3.2% 18.4% 22.2% (7.3)%
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ................. $108,066 $120,179 $120,726 $122,382 $89,659
Net assets attributable to common shares,
end of period (in 000's) ........................... $ 78,066 $ 90,179 $ 90,726 $92,382 $89,659
Ratio of net investment income to average
net assets attributable to common stock ............ 6.49% 4.35% 4.54% 4.23% 4.33%
Ratio of operating expenses to average
net assets attributable to common stock(c) ......... 1.48% 1.80% 1.83% 1.68% 1.45%
Ratio of operating expenses to average total
net assets(f) ...................................... 1.10% 1.36% 1.38% 1.39% 1.45%
Portfolio turnover rate .............................. 169% 175% 149% 243% 114%
PREFERRED STOCK:
Liquidation value, end of period (in 000's) .......... $ 30,000 $ 30,000 $ 30,000 $ 30,000 --
Total shares outstanding (in 000's) .................. 1,200 1,200 1,200 1,200 --
Asset coverage ....................................... 360% 401% 402% 408% --
Liquidation preference per share ..................... $ 25.00 $ 25.00 $ 25.00 $ 25.00 --
Average market value per share(d) .................... $ 24.31 $ 25.36 $ 26.84 $ 25.69 --
------------------------------
+ Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends.
(a) Based on net asset value per share.
(b) Based on market value per share.
(c) The ratio of operating expenses to average net assets attributable to common
stock for the fiscal year ended December 31, 1997 does not include a
reduction of expenses for custodian fee credits on cash balances maintained
with the custodian. Including the custodian fee credit, the ratio of
operating expenses to average net assets attributable to common stock for
the year would have been 1.67%.
(d) Based on weekly prices.
(e) Amount represents less than $0.005 per share.
(f) Amounts are attributable to both common and preferred stock assets. Prior to
1997, there was no preferred stock outstanding.
See accompanying notes to financial statements.
16
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
The Gabelli Convertible Securities Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Gabelli Convertible Securities
Fund, Inc. (the "Fund") at December 31, 2000, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2000 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
February 14, 2001
17
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
INCOME TAX INFORMATION (UNAUDITED)
DECEMBER 31, 2000
CASH DIVIDENDS AND DISTRIBUTIONS
TOTAL AMOUNT ORDINARY LONG-TERM DIVIDEND
PAYABLE RECORD PAID INVESTMENT CAPITAL REINVESTMENT
DATE DATE PER SHARE INCOME GAINS PRICE
-------- -------- ------------ ---------- --------- ------------
COMMON SHARES
03/27/00 03/17/00 $0.2000 $0.1365 $0.0636 $9.7120
06/26/00 06/16/00 0.2000 0.1376 0.0624 9.9847
09/25/00 09/15/00 0.2000 0.1376 0.0624 9.8482
12/26/00 12/15/00 0.7000 0.4811 0.2188 9.7983
------- ------- -------
Total Common Stock $1.3000 $0.8928 $0.4072
PREFERRED SHARES
03/27/00 03/20/00 $0.5000 $0.3409 $0.1591
06/26/00 06/19/00 0.5000 0.3439 0.1561
09/26/00 09/19/00 0.5000 0.3439 0.1561
12/26/00 12/18/00 0.5000 0.3439 0.1561
------- ------- -------
Total Preferred Stock $2.0000 $1.3726 $0.6274
A Form 1099-DIV has been mailed to all shareholders of record for the
distributions mentioned above, setting forth specific amounts to be included in
the 2000 tax returns. Ordinary income distributions include net investment
income and realized net short-term capital gains. 100% of the long term capital
gains paid by the Convertible Securities Fund in 2000 was classified as "20%
Rate Gains" subject to a maximum tax rate of 20% (or 10% depending on an
individual's tax bracket). Capital gain distributions are reported in box 2a of
Form 1099-DIV.
RETURN OF CAPITAL
The amount received as a non-taxable (return of capital) distribution should
be applied to reduce the tax cost of shares. There was no return of capital in
2000.
CORPORATE DIVIDENDS RECEIVED DEDUCTION AND U.S. TREASURY SECURITIES INCOME
The Fund paid to common and preferred shareholders ordinary income dividends
of $0.8928 and $1.3726 per share, respectively, in 2000. For 2000, 14.96% of the
ordinary income dividend qualifies for the dividend received deduction available
to corporations. The percentage of ordinary income dividends paid by the Fund
during 2000 derived from U.S. Treasury Securities was 26.51%. However, it should
be noted that the Convertible Securities Fund did not hold more than 50% of its
assets in U.S. Treasury Securities at the end of each calendar quarter during
2000.
HISTORICAL DISTRIBUTION SUMMARY -- COMMON STOCK
SHORT-TERM LONG-TERM ADJUSTMENT
INVESTMENT CAPITAL CAPITAL RETURN OF TOTAL TO
INCOME (A) GAINS (A) GAINS CAPITAL (B) DISTRIBUTIONS COST BASIS
---------- ---------- --------- ----------- ------------- ----------
2000 ........... $0.5661 $0.3267 $0.4072 -- $1.3000 --
1999 ........... 0.3899 0.4459 0.1942 -- 1.0300 --
1998 ........... 0.3866 0.2413 0.2921 -- 0.9200 --
1997 ........... 0.3969 0.2285 0.3346 -- 0.9600 --
1996 ........... 0.4900 0.1416 0.1034 -- 0.7350 --
1995 ........... 0.5574 0.2041 0.3595 $0.0290 1.1500 $0.0290(c)
1994 ........... 0.5730 0.1150 0.2120 -- 0.9000 --
1993 ........... 0.5610 0.2000 0.6640 -- 1.4250 --
1992 ........... 0.6540 0.0900 0.1320 -- 0.8760 --
1991 ........... 0.7060 0.1120 0.0470 -- 0.8650 --
1990 ........... 0.6900 -- -- -- 0.6900 --
1989 ........... 0.1150 -- -- -- 0.1150 --
HISTORICAL DISTRIBUTION SUMMARY -- PREFERRED STOCK
2000 ........... $0.8685 $0.5041 $0.6274 -- $2.0000 --
1999 ........... 0.7571 0.8657 0.3772 -- 2.0000 --
1998 ........... 0.8405 0.5246 0.6349 -- 2.0000 --
1997 ........... 0.5082 0.2926 0.4270 -- 1.2278 --
--------------------------
(a) Taxable as ordinary income for Federal tax purposes.
(b) Non-taxable.
(c) Decrease in cost basis.
18
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN
ENROLLMENT IN THE PLAN
It is the policy of The Gabelli Convertible Securities Fund, Inc.
("Convertible Securities Fund") to automatically reinvest dividends. As a
"registered" shareholder you automatically become a participant in the
Convertible Securities Fund's Automatic Dividend Reinvestment Plan (the "Plan").
The Plan authorizes the Convertible Securities Fund to issue shares to
participants upon an income dividend or a capital gains distribution regardless
of whether the shares are trading at a discount or a premium to net asset value.
All distributions to shareholders whose shares are registered in their own names
will be automatically reinvested pursuant to the Plan in additional shares of
the Convertible Securities Fund. Plan participants may send their stock
certificates to State Street Bank and Trust Company ("State Street") to be held
in their dividend reinvestment account. Registered shareholders wishing to
receive their distribution in cash must submit this request in writing to:
The Gabelli Convertible Securities Fund, Inc.
c/o State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
Shareholders requesting this cash election must include the shareholder's
name and address as they appear on the share certificate. Shareholders with
additional questions regarding the Plan or requesting a copy of the terms of the
Plan may contact State Street at 1 (800) 336-6983.
SHAREHOLDERS WISHING TO LIQUIDATE REINVESTED SHARES held at State Street Bank
must do so in writing or by telephone. Please submit your request to the above
mentioned address or telephone number. Include in your request your name,
address and account number. The cost to liquidate shares is $2.50 per
transaction as well as the brokerage commission incurred. Brokerage charges are
expected to be less than the usual brokerage charge for such transactions. If
your shares are held in the name of a broker, bank or nominee, you should
contact such institution.
If such institution is not participating in the Plan, your account will be
credited with a cash dividend. In order to participate in the Plan through such
institution, it may be necessary for you to have your shares taken out of
"street name" and re-registered in your own name. Once registered in your own
name your dividends will be automatically reinvested. Certain brokers
participate in the Plan. Shareholders holding shares in "street name" at
participating institutions will have dividends automatically reinvested.
Shareholders wishing a cash dividend at such institution must contact their
broker to make this change.
The number of shares of Common Stock distributed to participants in the Plan
in lieu of cash dividends is determined in the following manner. Under the Plan,
whenever the market price of the Convertible Securities Fund's Common Stock is
equal to or exceeds net asset value at the time shares are valued for purposes
of determining the number of shares equivalent to the cash dividends or capital
gains distribution, participants are issued shares of Common Stock valued at the
greater of (i) the net asset value as most recently determined or (ii) 95% of
the then current market price of the Convertible Securities Fund's Common Stock.
The valuation date is the dividend or distribution payment date or, if that date
is not a New York Stock Exchange trading day, the next trading day. If the net
asset value of the Common Stock at the time of valuation exceeds the market
price of the Common Stock, participants will receive shares from the Convertible
Securities Fund valued at market price. If the Convertible Securities Fund
should declare a dividend or capital gains distribution payable only in cash,
State Street will buy Common Stock in the open market, or on the New York Stock
Exchange or elsewhere, for the participants' accounts, except that State Street
will endeavor to terminate purchases in the open market and cause the
Convertible Securities Fund to issue shares at net asset value if, following the
commencement of such purchases, the market value of the Common Stock exceeds the
then current net asset value.
The automatic reinvestment of dividends and capital gains distributions will
not relieve participants of any income tax which may be payable on such
distributions. A participant in the Plan will be treated for Federal income tax
purposes as having received, on a dividend payment date, a dividend or
distribution in an amount equal to the cash the participant could have received
instead of shares.
19
The Convertible Securities Fund reserves the right to amend or terminate the
Plan as applied to any voluntary cash payments made and any dividend or
distribution paid subsequent to written notice of the change sent to the members
of the Plan at least 90 days before the record date for such dividend or
distribution. The Plan also may be amended or terminated by State Street on at
least 90 days' written notice to participants in the Plan.
VOLUNTARY CASH PURCHASE PLAN
The Voluntary Cash Purchase Plan is yet another vehicle for our shareholders
to increase their investment in the Convertible Securities Fund. In order to
participate in the Voluntary Cash Purchase Plan, shareholders must have their
shares registered in their own name.
Participants in the Voluntary Cash Purchase Plan have the option of making
additional cash payments to State Street Bank and Trust Company for investments
in the Convertible Securities Fund shares at the then current market price.
Shareholders may send an amount from $250 to $10,000. State Street Bank and
Trust Company will use these funds to purchase shares in the open market on or
about the 1st and 15th of each month. State Street Bank and Trust Company will
charge each shareholder who participates $0.75, plus a pro rata share of the
brokerage commissions. Brokerage charges for such purchases are expected to be
less than the usual brokerage charge for such transactions. It is suggested that
any voluntary cash payments be sent to State Street Bank and Trust Company, P.O.
Box 8200, Boston, MA 02266-8200 such that State Street receives such payments
approximately 10 days before the investment date. Funds not received at least
five days before the investment date shall be held for investment until the next
purchase date. A payment may be withdrawn without charge if notice is received
by State Street Bank and Trust Company at least 48 hours before such payment is
to be invested.
For more information regarding the Dividend Reinvestment Plan and Voluntary
Cash Purchase Plan, brochures are available by calling (914) 921-5070 or by
writing directly to the Convertible Securities Fund.
--------------------------------------------------------------------------------
The Annual Meeting of the Convertible Securities Fund, Inc.'s stockholders
will be held at 8:30 A.M. on Monday, May 14, 2001, at the Greenwich Public
Library, 101 West Putnam Avenue, in Greenwich, Connecticut.
--------------------------------------------------------------------------------
20
DIRECTORS AND OFFICERS
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
ONE CORPORATE CENTER, RYE, NY 10580-1434
DIRECTORS
Mario J. Gabelli, CFA
CHAIRMAN & CHIEF INVESTMENT OFFICER,
GABELLI ASSET MANAGEMENT INC.
E. Val Cerutti
CHIEF EXECUTIVE OFFICER,
CERUTTI CONSULTANTS, INC.
Felix J. Christiana
FORMER SENIOR VICE PRESIDENT,
DOLLAR DRY DOCK SAVINGS BANK
Anthony J. Colavita
ATTORNEY-AT-LAW,
ANTHONY J. COLAVITA, P.C.
Dugald A. Fletcher
PRESIDENT, FLETCHER & COMPANY, INC.
Karl Otto Pohl
FORMER PRESIDENT, DEUTSCHE BUNDESBANK
Anthony R. Pustorino
CERTIFIED PUBLIC ACCOUNTANT
PROFESSOR, PACE UNIVERSITY
Anthonie C. van Ekris
MANAGING DIRECTOR,
BALMAC INTERNATIONAL, INC.
Salvatore J. Zizza
CHAIRMAN, THE BETHLEHEM CORP.
OFFICERS AND PORTFOLIO MANAGERS
Mario J. Gabelli, CFA
PRESIDENT & CHIEF INVESTMENT OFFICER
Bruce N. Alpert
VICE PRESIDENT & TREASURER
Peter W. Latartara
VICE PRESIDENT
A. Hartswell Woodson, III
ASSOCIATE PORTFOLIO MANAGER
James E. McKee
SECRETARY
INVESTMENT ADVISOR
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580-1434
CUSTODIAN, TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust Company
COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
STOCK EXCHANGE LISTING
Common 8.00% Preferred
-------- ---------------
NYSE-Symbol: GCV GCV Pr
Shares Outstanding: 7,787,745 1,200,000
The Net Asset Value appears in the Publicly Traded Funds column, under the
heading "Convertible Securities Funds," in Sunday's The New York Times and in
Monday's The Wall Street Journal. It is also listed in Barron's Mutual
Funds/Closed End Funds section under the heading "Convertible Securities Funds."
The Net Asset Value may be obtained each day by calling (914) 921-5071.
----------------------------------------------------
For general information about the Gabelli Funds,
call 1-800-GABELLI (1-800-422-3554), fax us at
914-921-5118, visit Gabelli Funds' Internet
homepage at: HTTP://WWW.GABELLI.COM, or e-mail
us at: closedend@gabelli.com
----------------------------------------------------
--------------------------------------------------------------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Convertible Securities Fund may
from time to time purchase shares of its common stock in the open market
when the Convertible Securities Fund shares are trading at a discount of 10%
or more from the net asset value of the shares. The Convertible Securities
Fund may also, from time to time, purchase shares of its Cumulative
Preferred Stock in the open market when the shares are trading at a discount
to the Liquidation Value of $25.00.
--------------------------------------------------------------------------------
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
ONE CORPORATE CENTER, RYE, NY 10580-1434
PHONE: 1-800-GABELLI (1-800-422-3554)
FAX: 1-914-921-5118 INTERNET: WWW.GABELLI.COM
E-MAIL: CLOSEDEND@GABELLI.COM
GBFCS-AR-12/00